How T-bills work: bought at a discount, paid back at par

Treasury bills behave differently from most interest-bearing accounts, and the difference trips people up. A T-bill pays no periodic interest at all. Instead you buy it for less than its face value and receive the full face value when it matures — the gap between the two is your return.

A concrete example

Suppose you buy a 1-year T-bill with a $1,000 face value for $963. Twelve months later the Treasury pays you $1,000. You earned $37 on a $963 outlay, which works out to roughly a 3.84% return. There was no coupon deposited along the way; the entire gain showed up as the discount.

Why the quoted yield can look odd

• The 'discount rate' you sometimes see is calculated against face value, not your purchase price, so it reads slightly lower than your true return.
• The 'investment' or 'coupon-equivalent' yield is calculated against what you actually paid — that's the number worth comparing to a CD or savings rate.
• For very short bills, small price differences translate into big annualized percentages, so always compare like terms.

What this means in practice

Because the return is baked into the purchase price, T-bills are simple to hold: there's nothing to reinvest mid-term, and at maturity the cash simply lands. That makes them a natural building block for a ladder, where each rung matures cleanly on its own schedule.

The ladder builder converts whatever amount you enter into rungs and shows the maturity value of each, so you can see the discount-to-par math without doing it by hand.

Build a CD/Treasury ladder around current rates.

Updated July 2026